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Value at Risk The New Benchmark for Managing Financial Risk 3rd edition Philippe Jorion - Solutions
In most multi-programmed systems, user programs access memory through virtual addresses, while the operating system uses raw physical addresses to access memory.What are the implications of this design on the initiation of I/O operations by the user program and their execution by the operating
What are the various kinds of performance overheads associated with servicing an interrupt?
Describe three circumstances under which blocking I/O should be used. Describe three circumstances under which non blocking I/O should be used. Why not just implement non blocking I/O and have processes busy-wait until their device is ready?
Typically, at the completion of a device I/O, a single interrupt is raised and appropriately handled by the host processor. In certain settings, 96 Chapter 13 I/O Systems however, the code that is to be executed at the completion of the I/O can be broken into two separate pieces, one of which
Some DMA controllers support direct virtual memory access, where the targets of I/O operations are specified as virtual addresses and a translation from virtual to physical address is performed during the DMA. How does this design complicate the design of the DMA controller? What are the advantages
UNIX coordinates the activities of the kernel I/O components by manipulating shared in-kernel data structures, whereas Windows NT uses object-oriented message passing between kernel I/O components. Discuss three pros and three cons of each approach.
Define asset and funding liquidity risk.
Explain how funding liquidity risk can arise for leveraged institutions.
Explain what a haircut is (in the context of liquidity risk).
Why do companies issue debt with credit triggers? Do you think these are useful features?
Is the relative importance of the liquidity term in LVAR greater or smaller as the number of assets increases in a portfolio?
What instruments did LTCM use to leverage its balance sheet? Explain.
Explain how the analysis of market microstructure, or demand and supply curves, is useful to assess liquidity risk.
How is asset liquidity risk controlled?
A hedge fund has a position in 1 million shares of a stock whose midprice is $100. The bid-ask spread is $0.40, up to a volume of 100,000. Beyond that, prices fall by $0.50 per share for every 100,000 shares transacted in one day. Compute the loss from the midprice if the entire position is
Repeat with two other scenarios: (a) The sale is spread uniformly over 10 days, (b) The sale is spread over 5 days. Assume that prices are not expected to move.
Assuming a daily stock volatility of 1 percent and uncorrelated returns, compute the volatility of holding the original position over 10 days. Then compare the volatility of the three strategies in the previous questions. Ignore intraday risk.
Consider the ring protection scheme in MULTICS. If we were to implement the system calls of a typical operating system and store them in a segment associated with ring 0, what should be the values stored in the ring field of the segment descriptor? What happens during a system call when a process
Discuss which of the following systems allow module designers to enforce the need-to-know principle.a. The MULTICS ring protection schemeb. Hydra's capabilitiesc. JVM's stack-inspection scheme
Describe how the Java protection model would be sacrificed if a Java program were allowed to directly alter the annotations of its stack frame.
How are the access-matrix facility and the role-based access-control facility similar? How do they differ?
How does the principle of least privilege aid in the creation of protection systems?
How can systems that implement the principle of least privilege still have protection failures that lead to security violations?
The access-control matrix could be used to determine whether a process can switch from, say, domain A to domain B and enjoy the access privileges of domain B. Is this approach equivalent to including the access privileges of domain B in those of domain A?
Consider a system in which "computer games" can be played by students only between 10 P.M. and 6 A.M., by faculty members between 5 P.M. and 8 A.M., and by the computer center staff at all times. Suggest a scheme for implementing this policy efficiently.
What hardware features are needed for efficient capability manipulation? Can these be used for memory protection?
Discuss the strengths and weaknesses of implementing an access matrix using access lists that are associated with objects.
Discuss the strengths and weaknesses of implementing an access matrix using capabilities that are associated with domains.
Explain why a capability-based system such as Hydra provides greater flexibility than the ring protection scheme in enforcing protection policies.
Discuss the need for rights amplification in Hydra. How does this practice compare with the cross-ring calls in a ring protection scheme?
What is the need-to-know principle? Why is it important for a protection system to adhere to this principle?
Why should VAR measures be supplemented by portfolio stress testing?
If a scenario analysis reveals unacceptably large losses, what is a possible response?
How is stress testing different from backtesting when evaluating risk models?
"Stress testing is not necessary because the same results are obtained by a VAR model with an increasing confidence level." Comment.
What is the major difficulty in generating hypothetical stress tests across large portfolios?
Describe the SPAN system for setting margins on a portfolio of futures and options on the same currency.
Just to be sure, the risk manager runs a regression of the Japanese stocks on U.S. stocks and finds a slope coefficient of 0.9. Assuming that a shock of 20 percent originates from the United States, compute the predicted stress loss for the portfolio. What is the danger of this approach?
Buffer-overflow attacks can be avoided by adopting a better programming methodology or by using special hardware support. Discuss these solutions.
What are two advantages of encrypting data stored in the computer system?
What commonly used computer programs are prone to man-in-themiddle attacks? Discuss solutions for preventing this form of attack.
Compare symmetric and asymmetric encryption schemes, and discuss under what circumstances a distributed system would use one or the other.
Why doesn't D(kd , N)(E(ke , N)(m)) provide authentication of the sender? To what uses can such an encryption be put?
Discuss how the asymmetric encryption algorithm can be used to achieve the following goals.a. Authentication: receiver knows that only the sender could have generated the message.b. Secrecy: only the receiver can decrypt the message.c. Authentication and secrecy: only the receiver can decrypt the
Consider a system that generates 10million audit records per day. Also assume that there are on average 10 attacks per day on this system and that each such attack is reflected in 20 records. If the intrusion detection system has a true-alarm rate of 0.6 and a false-alarm rate of 0.0005, what
What is the purpose of using a "salt" along with the user-provided password? Where should the "salt" be stored, and how should it be used?
An experimental addition to UNIX allows a user to connect a watchdog program to a file. The watchdog is invoked whenever a program requests access to the file. The watchdog then either grants or denies access to the file. Discuss two pros and two cons of using watchdogs for security.
The UNIX program COPS scans a given system for possible security holes and alerts the user to possible problems. What are two potential hazards of using such a system for security? How can these problems be limited or eliminated?
Discuss a means by which managers of systems connected to the Internet could have designed their systems to limit or eliminate the damage done by a worm. What are the drawbacks of making the change that you suggest?
Argue for or against the judicial sentence handed down against Robert Morris, Jr., for his creation and execution of the Internet worm discussed in this chapter.
Make a list of six security concerns for a bank's computer system. For each item on your list, state whether this concern relates to physical, human, or operating-system security.
Toyota builds cars in Japan that are exported to the United States. Explain how this exposure could be hedged using forward contracts on the yen/dollar rate or by borrowing in yen or dollars.
If disclosure of risk is beneficial to companies, why do we need regulatory intervention? Wouldn't companies disclose the information voluntarily anyway?
What is the three-stage evolution of VAR applications in risk management?
Would you expect JPM Chase or Fannie Mae to rely more on VAR? (JPM Chase is exposed to a great variety of financial risks; FNMA is exposed mainly to U.S. interest-rate risks.)
Would you expect JPM Chase or Merrill Lynch to rely more on VAR? (JPM Chase takes large proprietary trading positions; Merrill largely hedges its risks.)
Why is CFAR more complex than traditional VAR models?
What is the difference between computation migration and process migration? Which is easier to implement, and why?
What are the implications of using a dynamic routing strategy on application behavior? For what type of applications is it beneficial to use virtual routing instead of dynamic routing?
Consider a distributed system with two sites,AandB.Considerwhether site A can distinguish among the following:a. B goes down.b. The link between A and B goes down.c. B is extremely overloaded and its response time is 100 times longer than normal.What implications does your answer have for recovery
The original HTTP protocol used TCP/IP as the underlying network protocol. For each page, graphic, or applet, a separate TCP session was constructed, used, and torn down. Because of the overhead of building and destroying TCP/IP connections, performance problems resulted from this implementation
Of what use is an address-resolution protocol? Why is it better to use such a protocol than to make each host read each packet to determine that packet's destination? Does a token-passing network need such a protocol? Explain your answer.
Contrast the various network topologies in terms of the following attributes:a. Reliabilityb. Available bandwidth for concurrent communicationsc. Installation cost
Even though the ISO model of networking specifies seven layers of functionality, most computer systems use fewer layers to implement a network. Why do they use fewer layers? What problems could the use of fewer layers cause?
Explain why doubling the speed of the systems on an Ethernet segment may result in decreased network performance. What changes could help solve this problem?
What are the advantages of using dedicated hardware devices for routers and gateways? What are the disadvantages of using these devices compared with using general-purpose computers?
In what ways is using a name server better than using static host tables? What problems or complications are associated with name servers? What methods could you use to decrease the amount of traffic name servers generate to satisfy translation requests?
Name servers are organized in a hierarchical manner. What is the purpose of using a hierarchical organization?
Consider a network layer that senses collisions and retransmits immediately on detection of a collision. What problems could arise with this strategy? How could they be rectified?
The lower layers of the ISO network model provide datagram service, with no delivery guarantees for messages. A transport-layer protocol such as TCP is used to provide reliability. Discuss the advantages and disadvantages of supporting reliable message delivery at the lowest possible layer.
What is the Sharpe ratio? How is it related to RAPM?
Does the Treynor ratio use total risk or beta risk?
What is the drawback of the conventional RAPM approach?
How are marginal RAPM and component RAPM related to marginal VAR and component VAR, respectively?
What is risk capital? Why can VAR be viewed as a measure of risk capital?
When using VAR as a measure of risk capital, how should the confidence level be chosen? Discuss the cost and benefits of having a high confidence level.
How can the desired credit rating be used to set a confidence level?
What are the benefits of a DFS when compared to a file system in a centralized system?
What are the benefits of mapping objects into virtualmemory, as Apollo Domain does?What are the drawbacks?
Describe some of the fundamental differences between AFS and NFS (see Chapter 11).
Discuss whether clients in the following systems can obtain inconsistent or stale data from the file server and, if so, under what scenarios this could occur. a. AFS b. Sprite c. NFS
Which of the example DFSs discussed in this chapter would handle a large, multi client database application most efficiently? Explain your answer.
Discuss whether AFS and NFS provide the following: (a) location transparency and (b) location independence.
What aspects of a distributed system would you select for a system running on a totally reliable network?
Consider AFS, which is a state ful distributed file system. What actions need to be performed to recover from a server crash in order to preserve the consistency guaranteed by the system?
Compare and contrast the techniques of caching disk blocks locally, on a client system, and remotely, on a server.
AFS is designed to support a large number of clients. Discuss three techniques used to make AFS a scalable system.
Discuss the advantages and disadvantages of performing path-name translation by having the client ship the entire path to the server requesting a translation for the entire path name of the file.
A pension fund has $100 billion in assets and $90 billion in liabilities. Assets are fully invested in stocks, and liabilities have a modified duration of 15 years. In 2002, stocks fall by 22.1 percent, and yields drop by 1.24 percent. Compute the surplus at the end of 2002 and the return (scaling
Assume now that the volatility of stock is 15 percent annually. The volatility of changes in yields is 1 percent annually. Assuming zero correlation between stocks and bonds and normal distributions, compute the 99 percent VAR for the surplus (where dollar returns are scaled by the initial asset
Suppose that a pension fund imposes strict VAR limits on the active managers. What are the pros and cons of measuring VAR over a short window?
In fact, the $100 million stock allocation had a total risk budget of $35 million, which is less than the actual risk. Explain how the allocations could be changed to maintain the target risk budget.
What is relative risk? Why is it important for investment managers?
What is funding risk? Why is it important to examine funding risk for a pension fund?
Will a drop in interest rates reduce funding risk?
Discuss the advantages and disadvantages of the two methods we presented for generating globally unique timestamps.
Consider a setting where processors are not associated with unique identifiers but the total number of processors is known and the processors are organized along a bidirectional ring. Is it possible to derive an election algorithm for such a setting?
Consider a failure that occurs during 2PC for a transaction. For each possible failure, explain how 2PC ensures transaction atomicity despite the failure.
Consider the following failure model for faulty processors. Processors follow the protocol but might fail at unexpected points in time. When processors fail, they simply stop functioning and do not continue to participate in the distributed system. Given such a failure model, design an algorithm
The logical clock timestamp scheme presented in this chapter provides the following guarantee: If event A happens before event B, then the timestamp of A is less than the timestamp of B. Note, however, that one cannot order two events based only on their timestamps. The fact that an event C has a
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